One of the major trends of digitization is the reshaping of value chains with a focus on the perspective of the digital customer. Within this process, many companies concluded that financial services are an elementary add-on to their products, as they are related to most buying processes.
This led to a booming market of Embedded Finance, which is expending from payments and e-commerce to all kind of financial products and use cases. After all Embedded Finance means that non-financial companies use services from financial partners and fully embed them in their digital systems. Well known examples are embedded financing features in car marketplaces or embedded insurances as part of a car purchase.
“Banking is necessary, banks are not” (Bill Gates, 1994)
Since the COVID-19 pandemic the growth of e-commerce gained unprecedented momentum and online businesses see the need to integrate payment, financing or insurance products into their digital offering. Thus, they can increase their product sales, gain additional revenue sources and broaden the impact of their products. They do not only create added value for their clients, but they also achieve a better digital experience and additional trust from a bank partner. Ending up with a fully embedded service, the company also gains control on the financial part of the service and the related data.
Embedded finance has advantages for every participant of the consumption process. On the demand side the user gets an all-in-one solution directly at the point of sale and doesn’t have to switch to another channel to get the financial services he needs in connection with his purchase.
On the supply side the marketplaces can offer holistic product packages which satisfy all the users’ needs and improve the customer experience and the financial institutions gain new digital sales channels for their products.
“The companies that win will be those that make it just as easy as possible for other players to work with them. And in that respect, the ability to make a payment, the ability to collect payments, the ability to access credit, all of that needs to be as frictionless as possible in the 21st century.” (Brett King)
Many statistics prove that the market for Embedded Finance is a skyscraping market. A strong indicator for this is the prognosis of the market value of embedded finance companies in the segments of payments, lending and insurance for the year 2030, which is estimated to be higher than the current valuation of all fintech and global top 30 bank and insurance companies combined. Additionally, the estimation of the market size is also seen big and fast-growing with $43 billion in 2021 and an expectation of $138 billion in 2026, which means a 215% market growth within five years (source: Juniper Research 2021, Embedded Finance). A reason for this is seen in the increasing availability of APIs from financial service providers as key enabler of embedded finance.
In conclusion, Embedded Finance is a booming market with extremely high potential – as consequence of new client focused value chains, the strive for seamless buying processes and the penetration of API-technology. After having seen a growth of embedded payments in e-commerce, we will have a look at the upcoming segment of embedded financing in our next chapter.
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ndgit announced today that the leading provider of market research and analysis on information technology, Forrester Research, has included ndgit among the nine providers that matter most in their report, „The Forrester New Wave™: Open Banking Intermediaries, Q1 2021“.
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